Daily Archives: February 14, 2008

Bank of America prices Carbon

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In a significant new development, Bank of America has decided to come open with its cost of carbon for evaluating coal powered plants.

Bank of America says it has decided to start factoring a cost of carbon-dioxide emissions into its decisions about whether to underwrite debt for new coal-fired plants. Specifically, the bank says it anticipates a federal cap that would require a utility to pay between $20 and $40 for every ton of CO2 its power plants emit. Today in Europe, which already has imposed caps, a permit to emit a ton of CO2 is trading at about $29.

Petrol Price Protest – Feb 22nd (well sort of!)

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Today I received this e-mail in my Inbox about a planned petrol price protest on the Feb 22nd in Australia. Real funny e-mail. Irrespective of the claims of the protest and its possibility lets look at the lack of economic thinking which has led to the creation of this mail.

The mail starts with this:

IT HAS BEEN CALCULATED THAT IF EVERYONE IN AUSTRALIA DID NOT PURCHASE A DROP OF PETROL FOR ONE DAY AND ALL AT THE SAME TIME, THE OIL COMPANIES WOULD CHOKE ON THEIR STOCKPILES.

Well, in fact it will tougher if there is more demand than supply than the other way round. They got this one wrong.

AT THE SAME TIME IT WOULD HIT THE ENTIRE INDUSTRY WITH A NET LOSS OVER 4.6 BILLION DOLLARS WHICH AFFECTS THE BOTTOM LINES OF THE OIL COMPANIES.

It’s beyond me how you can go from low demand to a net loss and that for one day. The pent up demand will come back the next day. In fact, the most hit may be the distribution companies. Anyways, Australia is too small a player to make any difference. In fact, South Australia gets its oil from a refinery in Singapore. That low in demand!

THEREFORE FRIDAYFEBRUARY 22nd HAS BEEN FORMALLY
DECLARED STICK IT UP THEIR ASS’ DAY AND THE PEOPLE OF THIS NATION SHOULD NOT BUY A SINGLE DROP OF PETROL THAT DAY. THE ONLY WAY THIS CAN BE DONE IS IF YOU FORWARD THIS E-MAIL TO AS MANY PEOPLE AS YOU CAN AND AS QUICKLY AS YOU CAN TO GET THE WORD OUT.

Try your luck…

WAITING FOR THE GOVERNMENT TO STEP IN AND CONTROL THE PRICES? IT IS NOT GOING TO HAPPEN. WHAT HAPPENED TO THE REDUCTION AND CONTROL IN PRICES THE ARAB NATIONS PROMISEDLONG AGO?

THE PRICES JUST KEEP GOING UP AND WE NEED TO STOP IT

PETROL PRICES ARE CAUSING OTHER EFFECTS; AIRLINES ARE FORCED TO RAISE THEIR PRICES, AS ARE TRUCKING COMPANIES . THIS INCREASES PRICES ON EVERYTHING THAT IS SHIPPED. THINGS LIKE FOOD, CLOTHING, BUILDING SUPPLIES MEDICAL SUPPLIES ETC. WHO PAYS IN THE END? WE DO! WE CAN MAKE A DIFFERENCE. IF THEY DON’T GET THE MESSAGE AFTER ONE DAY,WE WILL DO IT AGAIN AND AGAIN. SO DO YOUR PART AND SPREAD THE WORD. FORWARD THIS EMAIL TO EVERYONE YOU KNOW. MARK YOUR CALENDARS AND MAKE FEBRUARY22nd THE DAY CITIZENS OF AUSTRALIA SAY ‘ENOUGH IS ENOUGH’

Well, the connection of petrol prices to food and clothing is right. However, if we look at this from a carbon point of view in fact, we need to increase the price of petrol in order to curb its demand. Simple economics, price goes up and the demand should go down. This week’s BRW magazine (no online linking possible) has an article on how Australia has least expensive petrol after the US and China. That doesn’t help.

The interesting thing is that people do not understand simple economics and try to solve the big problems of the world.

The Value Added iPod

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Hal Varian in his last Economic Sense article for the Ny Times last year, wrote about how the research into the production of the iPod and how much each country was making out of it.

S o how can one distribute the costs of the iPod components across the countries where they are manufactured in a meaningful way?

To answer this question, let us look at the production process as a sequence of steps, each possibly performed by a different company operating in a different country. At each step, inputs like computer chips and a bare circuit board are converted into outputs like an assembled circuit board. The difference between the cost of the inputs and the value of the outputs is the “value added” at that step, which can then be attributed to the country where that value was added.

[...]

Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain.

Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters.

There is a real business lesson for all companies here. Value addition is what brings about profits. Be it an iPod or sustainability.

Biofuels and Unintended Consequences

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Bio fuels were considered the panacea in the short term for reducing green house gases. In the past, I have written about bio fuels and the issues of food production.

However, now two new studies have shown that biofuels can generate more CO2 in their entire life cycle than conventional fuels.

From Freakonomics:

The first study, led by Princeton University environment and economics researcher Timothy Searchinger, found that replacing fossil fuels with corn-based ethanol could actually double greenhouse gas emissions for the next thirty years.
[...]
The second study, led by Joseph Fargione, a scientist at the Nature Conservancy, found that by switching to biofuels, we could essentially be worsening climate change for the next 93 years, in that “[t]he clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land,”.

Considering the targets of EU and the US and the resulting investments and land clearance in Asia Pacific to supply bio fuels, these new studies are a bombshell and a real sign that we need to think through a lot more and take actions than trying to solve the problem of climate change which may have other negative unintended consequences.